Ask HN: How much do founders pay themselves?

[mrbird]

This is something I've always wondered about... When you take a VC round, how do you (as a founder) get your salary determined? Is it purely up to the board and investors? Is it up to you? How does it compare -- is it the bare minimum to live on, so that everything can go into the company? Is it comparable to an executive you'd hire? Somewhere in between?

I'm very curious about the calculus. I imagine it varies quite a bit by the type of investment made (e.g. angel vs. VC vs. institutional), but that's just a guess.

[jasonmcalacanis]

In general VCs and investors are looking for folks who want to take the minimum salary necessary to live off of, while pumping every dime into the product.

Of course most VCs are making $250-$1M in salary per year. That doesn't count their carry... that's just their base salary.

here is what VCs generally do:

1. Pre-launch/Pre-revenue, 20-something founders: $50-100k

2. 30 something with two kids in private school: $100-250k

3. Profitable company having just completed a C round of $15-30m: $200k with a $200k bonus on hitting a huge milestone.

Also, the secondary market for stock has helped this... i.e. reports are the founders of Wordpress, groupon, facebook and digg got to selling a couple of million dollars in stock.

best jason

[pjy04]

I think #1 is going to experience the most amount of scrutiny. I'll be more conservative if the pre-launch/pre-revenue amount is under 1m. It'll probably be closer to 40-60k

[massimosgrelli]

I think this approach can lead to kill start-up potential at the beginning. A founder is an entrepreneur and if a company has no money - because of it has insufficient revenues - than the founders must deal with the fact to not touch their company bank reserve except for eating :) So for #1 I would say: no income except for eating and sleeping. For my company - as a founder - I would do that way. Massimo Sgrelli

[gettingthere]

Here is my experience: first 1.5 years, nothing. Then $60K for the next year. Then as profits went up, it reached $120K. Stayed there for several years. Then profits went up more, $200K. Now at $275K.

[sinamdar]

This is the first response giving hard numbers. Thanks for the candor.

[kno]

$275K not bad by most standard, you earned it!

[jbyers]

Thanks for hard numbers. Can you describe in general terms what kind of startup you're in? How many years from nothing to now?

[kleinsch]

You pay yourself a reasonable living salary, based on location and living expenses. It usually has to be approved by the board, but so long as it's reasonable, you should be OK. The idea is that you're not getting rich off your salary, you should be focusing on growing the company to get rich off your ownership stake. At the same time, you shouldn't be starving, because that will cause you to spend more time focusing on your personal finances than working on the company.

[bherms]

You make a good point in your "You shouldn't be starving[...]" sentence -- One of the biggest productivity killers in my life is dealing with, or even worrying about personal finances. As a founder, if you decide you want to go get a few beers with friends and grab dinner, you shouldn't then have to worry about how you're going to recover the $30 you spent outside your budget. The key here, I think, is to pay yourself "enough to live in a manner that allows you to focus solely on your business and productivity."

[tptacek]

We pay ourselves market salary for our field, but we're not VC funded.

When my other friends and I started Sonicity, we all threw money in to start the company, and then when we got funded we took better-than-market salaries out. In reality, unless you're being stupid, founder salaries aren't on paper going to make much of a difference.

(There's a whole separate argument to be made about the tone you set in your company with salaries, but that's between you and your deity).

[portman]

A lot of people seem to be saying "market". But for us, it was based entirely on need.

After talking to our families, each of us came up with the minimum salary required to maintain our current lifestyle. The idea is that a founder should not be saving any money, but they also shouldn't be forced to move into a smaller home or stop eating out.

What's interesting is that this produced 3 very different salaries, even though our "market" rates are roughly equal.

Our VCs were completely supportive of those numbers and did not push back at all.

[_delirium]

Interesting--- salary based on need, while contributions presumably are based on strengths of each founder. I've heard that compensation strategy somewhere else... ;-)

(http://en.wikipedia.org/wiki/From_each_according_to_his_abil...)

[techsupporter]

Genuine question: Why shouldn't a founder be putting aside savings? Does savings include any accumulation of money, or just liquid cash and allows for retirement planning? I understand that the founder is being paid with venture capital, but what is supposed to happen if, even against the founder's every desires, the business goes bust, the founder is no longer able to work for some reason, or a myriad of unintentional-yet-plausible reasons why the founder might no longer be drawing that salary?

Granted, this comes from the perspective of a person whose entire life's income can be documented on a series of W2 forms, so I beg your indulgence of my ignorance.

[vaksel]

$400K...you are the CEO...you gotta get paid like one.

In reality it's how much you can afford. If you don't need money..pay yourself $1. If you need $15K to live on...pay yourself $15K.

At least until the company is profitable.

Once it's significantly profitable, you can afford to pay yourself more.

[blacksmythe]

CEOs of small companies don't make $400k.

CEOs that have run a successful business before might make $250k-$300k in Silicon Valley (a high salary area, to be sure).

$250k would probably be the high end for a CEO of a 30 person company, if the CEO had not had a major success before.

[cemerick]

Off-topic from the OP's question, but if you're incorporating as an S (for example, although other pass-through entities are similar), you need to pay yourself a "reasonable and appropriate" amount as salary. That is, you can't just pay yourself $1/year in salary and take $500K off in K-1 distributions (thereby avoiding FICA and other payroll-only withholdings). The IRS will tag you for that in a heartbeat.

[jonpaul]

I would also like to point out that most Angel Investors/VCs won't invest in LLCs/S-Corps. I think this is because of preferred options... I'm sure someone else with actual experience could chime in.

[Construct]

When I was in the VC world, the founder's salary vs. equity demands were usually used to gauge how invested they were into the company's vision and concept. If the founders spent a lot of time penciling in $200K+ salaries, elaborate bonus and commission packages, and exorbitant perks (a $5K/month 'car allowance' was my personal favorite) for themselves, then it was a definite red flag. If instead they were willing to take modest salaries but fought hard for equity, you knew that they truly believed in their idea and were fully invested in the concept.

[fnazeeri]

Check out http://www.compstudy.com/

It's an annual survey of private "high potential" companies (about 2/3 VC backed) executive compensation. You can find detailed data on base salary, target/actual bonus, equity and more for various stage companies.

It's the "Kelley Bluebook" of startup executive compensation.

[cullenking]

Would be cool if it wasn't, you know, $999

[cullenking]

I know you mentioned VC funded startups in the original post, however it seems this is becoming a digest for all interested parties to share/get info on startup salaries, so I'll chime in with numbers from our bootstrapped company, http://ridewithgps.com

I am pulling $1k a month from our business, which is a bit under what we bring in right now. It allows me to focus less on outside money and more on the business, and, as soon as we get more, I will be able to take $2k. This is bare minimum for me to live off of, and I'll maintain it here until my cofounder is able to come on at $2k and make his bare minimum to quit his dayjob.

After that, salaries can increase as revenue increases, up to "industry standard" wages. We are currently an S-corp, so we have to figure this out, which is turning out to be kinda tricky. According to the IRS, is a founder considered a CEO if the business has no CEO? Does that mean if we don't take $150k a year in salary we are going to get the hammer from the IRS? Trial by fire!

[jasonjei]

Usually less than everyone else as long as they are able to do a little more than subsist. They are taking equity. When other people who are hired on board find out founders are paid less than everyone else, it usually quells any negative attitude towards management

[dstein]

You should think of it as equity, not money. Do you want to extract your equity (convert it to cash) now and buy stuff, or do you want to reinvest it in your business?

[thinkcomp]

I pay myself $33K gross annually. I'm the lowest-paid salary employee in the company.

[kno]

$33K is pretty low in most places in the US, How do you manage to stay focus on runing the business?

[synnik]

You should never be the lowest paid.

Executives are paid not for the actual tasks they do, but for the fact that all responsibility and accountability is on their shoulders.

[seldo]

My co-founder doesn't have a salary (though he does get our health benefits). I'm on an H-1B so my salary legally required to be "market rate", as set by the US government for my job title and location (a fact apparently not very widely known).

[michaelhalligan]

I've known several DBAs on H-1B's who were paid severely under market rate for what they were doing. How is "market rate" defined?

[stevefarnworth]

You can't have money worries when trying to build your business. It's distracting and could well cost the VCs more in the long run if you have other worries/can't focus 100% on the job in hand.

If your expenses are $4000pcm, then take $5500/$6000. You're running a company after all, and that precious down time you have has to be maximised (generally costing money).

If you're financially happy you'll have no need to work, but you'll want to.

[joshbuckley]

Jason Calacanis had an interesting segment on this on his show. They say $50-100k. http://www.youtube.com/watch?v=kloJQ0EjgTE

[BenS]

I don't think founders should take giant salaries. At the same time, if you have funding, I think you should pay yourself enough to be comfortable.

People do short-sighted things when they are desperate. I think super low salaries increase the risk of burning out, giving up, or taking a more attractive offer. I think quitting for one reason or another is the biggest risk to a startup's success.

[seanMeverett]

It's directly correlated to your bottom-line net income and return on invested capital. If you can scrape by on nothing and invest everything possible back into the business (assuming you have a high ROIC).

It also assumes you have enough profit to pay yourself. Thus, the 33k is prob best if you're not living on ramen and tuna (go grab a beer as one commenter suggested). Because, if you're investing back into the biz then your future salary is exponentially higher.

For example, my interactive marketing company is experiencing triple digits ROIC so we have yet to take a dollar out of the company and continue to invest not only profits buy our own outside cash (and it's been well over a year) but we're getting to the point where we need to pay some bills and feed ourselves. Thus, we're going to keep our salaries as low as possible to cover our personal expenses like rent and food. We're doing this because we know a year from now we're going to much, much more profit to work with. So you want a hard number? Less than $30k per year. Pow.

[billclerico]

at wepay the founders are the lowest paid employees in the company

[kno]

How much?

[newmediaclay]

We didn't pay ourselves until the company was profitable. This was somewhat easier since we started the company while in college and had pretty much no standard of living to maintain.

We didn't take any funding, so it really wasn't possible to pay ourselves before becoming profitable unless we took on other debt. We decided we'd rather be individually poor with a company than individually wealthy with no company.

Once the company was profitable, the partners agreed on a goal-oriented pay structure. The base was under market value compared to other opportunities, but was still more than enough to easily live on. Then, by hitting reasonable revenue targets, salary would increase quickly.